FCA Competition Act investigation: Mastercard, Visa and PayPal digital wallet probe
In short: The FCA opened a Competition Act 1998 investigation into Mastercard, Visa and PayPal in March 2026; the FCA publicly confirmed the investigation on 6 May 2026. The FCA Competition Act investigation covers all three under Chapter I, and Mastercard and Visa under Chapter II for suspected abuse of dominance, over how Mastercard and Visa cards fund the PayPal digital wallet. The FCA is running the case under its Competition Act 1998 concurrent function in section 234J of the Financial Services and Markets Act 2000, with allocation between the FCA and the CMA governed by section 54 and the Competition Act 1998 (Concurrency) Regulations 2014. Scheme participants, acquirers, wallet operators and payment fintechs must preserve documents from the moment a section 26 notice arrives.
The Financial Conduct Authority is investigating Mastercard, Visa and PayPal for suspected breaches of UK competition law. The FCA opened formal investigations into all three firms under Chapter I of the Competition Act 1998, and into Mastercard and Visa under Chapter II for suspected abuse of dominance, in March 2026; the FCA publicly confirmed the investigations on 6 May 2026. The FCA is examining how Mastercard and Visa cards fund the PayPal digital wallet and how that funding routes through the schemes.
PayPal disclosed the investigations in its Q1 2026 quarterly report on 5 May 2026; the FCA confirmed them the next day. The FCA has made no findings and is gathering evidence; it may or may not move to a statement of objections. The FCA has described the subject matter only as how Mastercard and Visa cards fund the PayPal digital wallet and how customers use it, and PayPal’s Form 10-Q refers to certain contractual provisions. In our view, the conduct categories most likely in scope are scheme rulebook clauses, no-steering and no-surcharge provisions, exclusivity terms and wallet integration agreements, and scheme participants, acquirers, digital wallet operators and payment fintechs should read their contracts against those categories.
The case so far
- The FCA opened Chapter I investigations into Mastercard, Visa and PayPal, and Chapter II investigations into Mastercard and Visa, in March 2026, and publicly confirmed the investigations on 6 May 2026. Source: FCA press release, 6 May 2026.
- The FCA is examining how Mastercard and Visa cards fund the PayPal digital wallet and how customers use it. Source: FCA press release, 6 May 2026.
- Sections 234I to 234O of the Financial Services and Markets Act 2000 hold the FCA’s concurrent competition jurisdiction; the Financial Services (Banking Reform) Act 2013 inserted them and they came into force on 1 April 2015. Source: FCA, Competition law powers.
- The procedural concurrency framework operates under section 54 of the Competition Act 1998 and the Competition Act 1998 (Concurrency) Regulations 2014 (SI 2014/536). Source: legislation.gov.uk.
- The FCA may require documents and information from any person under section 26 of the Competition Act 1998 from the moment it opens an investigation. Source: section 26 CA 1998.
The concurrency regime and the Competition Act 1998
The Chapter I prohibition in section 2 of the Competition Act 1998 catches agreements between undertakings, decisions by associations of undertakings and concerted practices that have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom. The Chapter II prohibition in section 18 catches the abuse of a dominant position. Chapter I reaches decisions by associations of undertakings as well as agreements between them, and the card schemes have been litigated on both limbs. The association limb was decided in the EU courts. In Case C-382/12 P MasterCard Inc v Commission ECLI:EU:C:2014:2201 the Court of Justice held at paragraph 76 that the appellants could not maintain that a body such as MasterCard cannot be classified as an association of undertakings when adopting decisions relating to the MIF, and rejected that plea at paragraph 77. Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC [2020] UKSC 24 did not decide that limb. The Supreme Court recorded at paragraph 42 that it was not in dispute that the setting of the UK MIF was pursuant to an agreement between undertakings within Article 101(1); in the Mastercard proceedings the claimants had agreed during the trial not to pursue an association-of-undertakings allegation, in return for Mastercard advancing no argument against there being a relevant agreement or concerted practice (Popplewell J, [2017] EWHC 93 (Comm) at [34], quoted by the Court of Appeal in Dune Group at [66]). What Sainsbury’s settled is the restriction-by-effect analysis: at paragraph 93 the essential facts included a counterfactual of no default MIF with settlement at par, and at paragraph 94 the Court held Mastercard CJ binding.
Three regulators hold concurrent jurisdiction to apply the Chapters I and II prohibitions in financial services and payments markets. The CMA holds the general jurisdiction. FSMA 2000 sections 234I to 234O hold the FCA’s concurrent function in financial services markets; the Financial Services (Banking Reform) Act 2013 inserted them. Section 61 of the Banking Reform Act 2013 holds the PSR’s concurrent function in respect of participation in payment systems.
The Mastercard and Visa schemes are payment systems through which PayPal funding flows, so the PSR could have taken this case under section 61. Designation does not come into it: section 61(2) applies the CMA’s Part 1 Competition Act 1998 functions so far as they relate to participation in payment systems, and Cavanagh J confirmed at paragraph 47 of Mastercard v PSR that the concurrent competition powers apply to all payment systems, whether regulated or not. The FCA could take it under its Competition Act 1998 concurrent function in section 234J of FSMA 2000. Section 54 of the Competition Act 1998 and the Concurrency Regulations 2014 govern allocation between regulators, require consultation before any case opens, and provide for a single lead. The FCA leads.
What the FCA Competition Act investigation covers
Chapter I reaches the contracts that link Mastercard, Visa and PayPal. Three categories of clause matter most. First, no-steering and no-surcharge restrictions in scheme rulebooks that stop the wallet favouring cheaper funding instruments or shaping the customer journey by cost of acceptance. Second, exclusivity, default-routing and preference clauses that push flow towards particular scheme rails inside the wallet. Third, interchange and scheme fee arrangements specific to wallet-funded transactions, where the post-Brexit retained Interchange Fee Regulation caps intra-UK consumer card rates but leaves the wider commercial perimeter open. The UK MIF case law supplies the framing the FCA is likely to draw on, though it is less settled than it is usually presented. The zero-MIF counterfactual comes from Sainsbury’s in the Supreme Court and governs the period before the Interchange Fee Regulation. Dune Group Ltd v Visa Europe Ltd [2022] EWCA Civ 1278 does not restate it. Newey LJ accepted at paragraph 41 that it is at least seriously arguable that, with the advent of the Interchange Fee Regulation, the unilateral interchange fee model and bilaterals counterfactual became the relevant counterfactuals, and the Court of Appeal upheld the Competition Appeal Tribunal’s refusal of summary judgment against the schemes for the period from 9 December 2015, dismissing the claimants’ appeal at paragraph 77. On wallet-funded transactions after the Regulation came into force the counterfactual is therefore open, and a firm assessing its exposure should treat it as open.
Chapter II is narrower in legal form but broader in commercial reach. The FCA must first decide on the relevant market: wallet-level, which would put PayPal at the centre, or scheme-level, which would draw Mastercard and Visa each into dominance scrutiny over wallet funding. Conduct types most likely to fall in scope include exclusionary tying of scheme acceptance to wallet support, refusal to supply on commercially equivalent terms, and margin squeeze where wallet integration imposes step-in fees out of proportion to the underlying processing cost. The FCA’s choice to name PayPal only under Chapter I, and not under Chapter II, is open to more than one reading. Our reading, and it is comment on the framing rather than anything the FCA has stated, is that the FCA sees dominance at scheme level, not at wallet level, as the live issue.
From the moment the FCA opens an investigation, it may issue notices under section 26 of the Competition Act 1998 requiring named persons to produce specified documents and to answer specified questions. Section 26 reaches third parties as well as the named addressees of the case, so notices may go to acquirers, gateway providers, digital wallet operators and merchants whose contracts route through the same architecture.
| Feature | Chapter I (section 2 CA 1998) | Chapter II (section 18 CA 1998) |
|---|---|---|
| Conduct caught | Agreements, decisions and concerted practices restricting competition | Abuse of a dominant position |
| Parties named | Mastercard, Visa, PayPal | Mastercard, Visa |
| Exemption available | Section 9 exemption (self-assessed): efficiency, indispensability, fair share, no elimination of competition | None on the prohibition itself; objective justification at conduct stage |
| Maximum financial penalty | Up to 10 per cent of worldwide group turnover | Up to 10 per cent of worldwide group turnover |
| Information-gathering basis | Section 26 CA 1998 | Section 26 CA 1998 |
Implications for scheme participants and digital wallet operators
After the named firms, exposure runs widest for acquirers and licensed scheme participants party to the rulebooks the FCA is reading.
Section 26 catches contemporaneous communications, board papers, internal pricing analyses and product development records that bear on the conduct under investigation. Firms should put a formal document hold in place on the day the FCA first contacts them.
Firms need to locate, map and assess scheme rulebook clauses, no-steering and no-surcharge provisions, exclusivity terms, default-routing rules and wallet integration agreements against the FCA’s likely lines of enquiry.
Firms can also narrow section 26 responses by negotiation; voluntary information offers can shorten the case timeline; and constructive engagement with FCA case teams opens space for commitments under section 31A of the Competition Act 1998 if commitments become an option.
Digital wallet operators, payment fintechs and merchants outside the rulebooks route their products through the same contractual arrangements. Wallet operators competing with PayPal can now read how the FCA approaches the funding-instrument layer of wallet design, and the commercial space that may open for pro-competitive integration models. Payment fintechs whose product roadmaps assume default access to scheme rails should design for portability across funding instruments and across scheme alternatives, including account-to-account routes. HM Treasury’s payments modernisation programme and the planned PSR/FCA consolidation sharpen that point: if the FCA absorbs the PSR’s payments competence as the Financial Services and Markets Bill 2026-27 provides, a single regulator would take a single view of commercial conduct in payment systems.
Where the conduct meets consent and authorisation, the existing framework on payment consent under the PSRs 2017 remains the floor. The Chapter II analysis on wallet integration will draw on the same operational categories. Firms running parallel reviews of wallet integration terms and PSRs 2017 Regulation 67 consent flows will find the work overlaps materially.
Viewpoint
In our view, the allocation of this case to the FCA rather than the PSR matters more than the investigations themselves. The PSR holds the dedicated payments competition mandate and the deeper sector knowledge of scheme rules and acquiring economics; the judgment in its favour in R (Mastercard Europe SA) v Payment Systems Regulator [2026] EWHC 64 (Admin) settled the scope of its section 54 general-directions power. Cavanagh J held at paragraph 290 that the PSR has power under section 54 of FSBRA to impose the interchange fee caps it proposes. The judgment decides a question of statutory interpretation and nothing more: at paragraph 2 the PSR had made only a decision in principle, with the level of the caps and the date of implementation still to be settled, and at paragraph 3 the challenge was solely a vires challenge, so there was no direction before the court to uphold. The perimeter is narrow. At paragraph 47 the Part 5 sectoral regulation powers “apply only to regulated payment systems”, in contrast to the concurrent competition powers, which apply to all payment systems whether regulated or not, and at paragraph 125 sections 54 to 58 can be exercised only in relation to payment systems designated as regulated payment systems. Designation is HM Treasury’s act, by order under section 43 FSBRA on the criteria in section 44, and not the PSR’s. The FCA leading on a card-schemes-and-wallets case points to the merged regime confirmed in HM Treasury’s response to its consultation A Streamlined Approach to Payment Systems Regulation, published on 21 April 2026, and now carried by the Financial Services and Markets Bill 2026-27, which would abolish the PSR and transfer its functions to the FCA: if the Bill passes in that form, competition enforcement under the Competition Act 1998 is likely to become the regulator’s primary tool for scheme-rule reform rather than bespoke FSBRA general directions.
The operational bottleneck is rarely the headline interchange rate; it is the cluster of no-steering, default-routing and wallet-funding clauses sitting underneath the rulebook, and that is the cluster the FCA has now opened to scrutiny.
Frequently asked questions
What is the FCA Competition Act investigation about?
The FCA opened Chapter I investigations into Mastercard, Visa and PayPal in March 2026, and Chapter II investigations into Mastercard and Visa, over how Mastercard and Visa cards fund the PayPal digital wallet and how customers use it; the FCA publicly confirmed the investigations on 6 May 2026. The FCA is gathering evidence and has reached no findings.
Does the case reach scheme participants who are not named?
Yes. Under section 26 of the Competition Act 1998 the FCA may require documents and information from any person, not only from the addressees of the case, and the legal analysis the FCA develops on scheme rulebook clauses applies to every participant on the same rulebook, not only the named firms. Acquirers, issuers, wallet operators and payment fintechs party to the rulebooks under examination should plan accordingly.
What information powers does the FCA have under the Competition Act 1998?
The FCA may issue written notices under section 26 of the Competition Act 1998 requiring named persons to produce specified documents and answer specified questions, and may enter premises with or without a warrant under sections 27 to 28A. Non-compliance with an information notice is no longer a criminal offence: the offence of failing to comply with a section 26 notice was abolished on 1 April 2014, and non-compliance now attracts civil penalties under section 40A of the Competition Act 1998, imposed under the procedure the Digital Markets, Competition and Consumers Act 2024 introduced and capped for an undertaking at 1 per cent of turnover as a fixed amount plus 5 per cent of daily turnover for a continuing failure. Criminal liability is confined to destroying or falsifying documents (section 43), providing false or misleading information (section 44) and obstruction (section 42(5) and (7)), and even there the regulator may impose a civil penalty rather than prosecute in some cases. The FCA exercises these powers in financial services markets through its Competition Act 1998 concurrent function in section 234J of FSMA 2000.
How does the case interact with the planned PSR/FCA consolidation?
The FCA has taken a case that the PSR could also have taken under its concurrent competition powers in section 61 of the Financial Services (Banking Reform) Act 2013, which cover participation in payment systems generally and are not confined to those HM Treasury has designated. HM Treasury confirmed the planned abolition of the PSR and the transfer of its functions to the FCA in its response to the consultation A Streamlined Approach to Payment Systems Regulation, published on 21 April 2026. The Financial Services and Markets Bill 2026-27, introduced in the House of Lords on 19 May 2026, would give effect to the transfer; as at 28 August 2026 the Bill has completed Lords Committee stage, with Report stage scheduled from 7 September 2026. Until the Bill passes and is commenced, both regulators retain their existing competence. In our view, the allocation is an early indication of how the merged regulator would use competition law in payment systems.
For advice on scheme rulebook exposure, document preservation under section 26, or wallet integration contract review against the FCA Competition Act investigation now under way, contact Rob Bratby at Bratby Law.
Correction, 12 July 2026: this post previously said that the FCA opened the investigations on 6 May 2026; the investigations opened in March 2026 and the FCA publicly confirmed them on 6 May 2026 (PayPal Holdings Inc, Form 10-Q for Q1 2026, filed 5 May 2026, SEC EDGAR; FCA press release, 6 May 2026), and the description of Mastercard v PSR was corrected to refer to the vires of the section 54 general-directions power rather than the separate Competition Act 1998 concurrent powers.
Correction, 19 August 2026: this post previously said that Mastercard v PSR confirmed the reach of section 54 FSBRA general directions to systems the PSR has not formally designated; that Sainsbury’s [2020] UKSC 24 settled the framework for card schemes as associations of undertakings; that Dune Group [2022] EWCA Civ 1278 is a Court of Appeal restatement of the Sainsbury’s counterfactual; and that both are CAT decisions. Each was wrong. The Part 5 powers apply only to regulated payment systems ([2026] EWHC 64 (Admin) at [47] and [125]), designation being HM Treasury’s act by order under section 43 FSBRA. The association-of-undertakings limb was decided in Case C-382/12 P at [76] and [77]; the Supreme Court recorded at [42] that agreement between undertakings was not in dispute. Newey LJ held in Dune Group at [41] that the post-Interchange Fee Regulation counterfactual is at least seriously arguable, and the Court of Appeal upheld the refusal of summary judgment against the schemes at [77]. Neither Sainsbury’s nor Dune Group is a CAT decision. The PSR’s concurrent competition powers under section 61 FSBRA were also described as confined to designated payment systems; they are not. Verified against National Archives Find Case Law, EUR-Lex and legislation.gov.uk.
Correction, 28 August 2026: this post previously said that non-compliance with a section 26 notice carries criminal sanctions; the offence of failing to comply was abolished on 1 April 2014 and non-compliance now attracts civil penalties under section 40A of the Competition Act 1998, criminal liability being confined to destroying or falsifying documents, providing false or misleading information and obstruction. The post also now names section 234J of FSMA 2000 as the FCA’s Competition Act 1998 concurrent function, describes the section 9 exemption as self-assessed, describes the summary judgment refusal in Dune Group as covering the period from 9 December 2015, replaces references to a Fintech Week 2026 package with HM Treasury’s consultation response to A Streamlined Approach to Payment Systems Regulation of 21 April 2026, records the Financial Services and Markets Bill 2026-27 and its stage, and marks as comment the passages on the conduct categories likely in scope and on the Chapter II dominance framing.
